The objective of chess is to capture your opponent’s king. That sounds easy enough. But as early as the first move, you quickly realize that knowing and understanding the ultimate goal of the game doesn’t help you make your first move. Finances can be the same way.
You may have as a goal to save $1 million (or more) for retirement, but what steps should you be taking in your 20’s or 30’s to accomplish that goal? Let’s take a closer look at the problem through the eyes of a chess player, and then will return to financial goals.
Here’s the starting position of a chess game:
So what’s your first move? To answer that question effectively, we need to know more than just the final objective of the game. In other words, we need to establish some intermediate and short-term goals. Two such goals in chess are to make moves that (1) quickly develop your pieces (not pawns); and (2) control the center of the board. Why? Because experience shows that rapid deployment of your pieces in a way that exerts control over the center of the board will place you in a better position to defend your king and to attack your opponent’s king. Thus, a typical first move in chess is e4 (also known as P-K4 or pawn to king 4):
This move accomplishes both goals. It exerts control over the squares d5 and f5 and it opens the diagonal for white to later deploy the white-squared bishop and queen.
Setting intermediate and short-term goals is as important to your finances as it is to winning a game of chess. Long term goals must be broken down into smaller goals if they are going to help us make sound financial decisions. Here are a few, short-term financial goals that I rely on to make smart (hopefully) financial decisions:
- Savings Goals: I set a saving goal as a percentage of my gross income. My current goal is to save 20% of my income, excluding any employer match. Am I meeting that goal? No. Right now I’m at about 10% and growing. I do check my current investment levels against my long-term retirement goals, but having this short-term goal helps motivate me to save more now.
- Debt Repayment Goals: Most of us have some debt, and I’m no exception. In addition to making the monthly minimum payments, I set a short-term goal of paying a little extra each month. It’s not a lot, but I know over the long-term, it will make a big difference and help us get out of debt.
- Investing Goals: There are many good, short-term investing goals, but one of the most important is to keep expenses down. I set a goal of not paying more than 50 basis points, on average, for all of my mutual fund investments. I recently met that goal, so now I’ve set it to 40 basis points. The impact of just 10 basis points, 30 years from now, is very significant.
- Giving Goals: I also set goals for charitable donations. Some set these as a percentage of their income. That’s fine, but I’m trying to set some short-term goals that look at the bigger picture. So I’ve set a goal this year to possibly set up what’s called a donor-advised charitable fund that will allow me to donate appreciated stock to the charities of my choice, rather than cash. I’ll be writing more about that later, but the point is, giving goals are important, too.
So with that, let’s turn back to chess for just a moment. Here is a chess problem for you to tackle if you’d like. It’s White’s turn to move. If you think you know what the best move is, or even if you’re not so sure, leave a comment. I’ll provide the answer at the end of the week.